FINANCE minister Mthuli Ncube has assured investors that they will be legally empowered to repatriate their earnings on the Victoria Falls Stock Exchange (VFSE).This comes in the wake of an estimated ZW$42,5 billion (US$524 million) loss suffered by the Zimbabwe Stock Exchange (ZSE) after it was temporarily suspended by government for a month.
In a bid to contain the currency volatility crisis, government, in a move that rattled investors also suspended the fungibility of stocks of three blue chip counters namely Old Mutual, Seed Co and PPC.
Establishment of the VFSE, which will strictly be trading in US dollars and other stable convertible currencies, was announced in July but did not fully lift the optimism of investors smarting from massive losses incurred after suspension of trading on the local bourse.
Ncube this week told the Zimbabwe Independent the introduction of the foreign currency trading stock market had received overwhelming interest from foreign investors, who will be free to repatriate their dividends and capital.
He said: ”The 2019 National Budget Statement highlighted government’s intention to set up an Offshore Financial Services Centre (OFSC) as part of efforts to develop the financial services sector, through provision of opportunities for global investment. To this end, government is launching the Victoria Falls Securities Exchange in order to drive foreign investment into the country.
”It is envisaged that the market will be attractive and therefore it will have sufficient depth of liquidity to facilitate ease of entry and exit. Statutory Instrument 196 of 2020 provides that securities listed on VFEX shall be traded solely in United States dollars (USD) or any other convertible currency. Investors under the VFEX will be trading in foreign currency and repatriation will be done accordingly in the currency of trade,” Ncube told this newspaper.
Funds mobilised on the VFEX once it starts trading, the Treasury boss said, will only be held in ”approved” offshore accounts and banks in line with stipulated regulations·
”Listing on VFEX will be in accordance with the VFEX listing rules as approved by the Securities and Exchange Commission of Zimbabwe (“SECZ”) and capital raised on VFEX may be held in an approved local or offshore account with an internationally recognised banking institution,” Ncube said.
Trading trends on the ZSE show a massive capital flight following the reintroduction in June last year of the local unit as the sole legal tender. This happened as investors sought safe havens for their investments.
At the time the local unit was reintroduced, US$1 was worth ZW$6,32, and now US$1 is fetching ZW$81,4 on the weekly foreign currency trading platform.
Zimbabwe, battling a multifaceted economic crisis, has introduced a range of measures to mobilise scarce foreign currency that include setting up the VFSE.
On whether the ZSE had ended up being a double-edged sword, Mthuli said: “The suspension was therefore critical in order to enable the Financial Intelligence Unit (FIU) to do its job in dealing with illicit financial activities, which were causing market distortions and fuelling the parallel market.
“A market correction was likely to occur sooner than later as it in fact represented a speculative market bubble that had partially been fuelled by adverse expectations. Since the resumption of trading, the market has recovered with trades now based on sound fundamentals.”
Asked what measures have been put in place to address the issue of illicit activities, Ncube said some of the measures put in place by the government to stabilise the exchange rate, included strict adherence to the monetary targeting framework, suspension of mobile money agents for bulk transactions and improved monitoring of electronic transactions.
He said “These have also started to bear fruit as evidenced by the muted activity on the foreign exchange parallel market”.l See interview on pages 6 and 7 and the full interview on https://theindependen.wpengine.com